U.S. Dollar Up as Stimulus Talks Delayed
The USD was up on Monday in Asian session, with negotiations over the latest stimulus measures in the U.S. delayed further and the CNY seeing a drop after the Chinese central bank announced measures to curb the currency’s strength earlier in the day.
The U.S. Dollar Index (DXY) that tracks the USD against a basket of other currencies edged up 0.10% to $93.108. The USD rebounded from losses on Friday, the biggest in six weeks, as investors hoped for Congress to reach consensus on the stimulus measures.
Investor hopes rose after President Donald Trump proposed a $1.8 trillion package on Friday during talks with House of Representatives Speaker Nancy Pelosi, moving closer to the Democrats’ $2.2. trillion proposal.
However, Trump’s offer displeased some of his fellow Republicans, many of whom are reluctant to add to a growing debt pile, and potentially costing his party critical support in the November 3rd presidential elections.
As we approach the election day, investors are increasingly betting on the likelihood of Trump losing to Democrat rival Joe Biden in the election, and Biden offering a package with a larger price tag as president. Other investors remained unconvinced.
“On the whole, the big picture has not changed that much,” Societe Generale director of FOREX Kyosuke Suzuki said in a recent interview.
The USD/JPY pair inched up 0.01% to 105.60. The USD/CNY pair was up 0.40% to 6.7199, after the yuan touched a 17-month high on Friday in both onshore and offshore trade. The Chinese currency has gained more than 6% against the USD since May, driven in large part by the favourable yield differential between China and other major global economies.
The offshore Chinese yuan fell in the wake of the People’s Bank of China’s decision to lower the requirement ratio for financial institutions when conducting some foreign exchange forwards trading. Some investors predicted that the move would encourage the use of forwards, thus keeping the yuan’s strength in check.
“The authorities have not stood in the way of yuan strength, but this move could be seen as a sign that they want to slow the pace of appreciation,” ANZ head of Asia Research Khoon Goh said.
“Our interpretation is that removing the reserve requirement is intended to encourage firms to hedge in order to manage currency risk. It also enhances the foreign exchange market structure by making it easier for foreign investors to hedge their onshore portfolio investments,” he added.
The AUD/USD pair edged down 0.12% to 0.7230 and the NZD/USD pair inched down 0.02% to 0.6663. The GBP/USD pair edged down 0.10% to 1.3033 ahead of the upcoming European Council meeting on October 15th and 16th, where the Brexit deal with the U.K. is on the agenda. The GBP reached a one-month high on Friday as investors were cautiously optimistic about the U.K. and the European Union reaching a deal by Prime Minister Boris Johnson’s self-imposed deadline of October 15th.
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